VEGETARIAN FRIENDLY INVESTING

By Wayne Smeltz, Ph.D.

You have just tasted a vegan burger you think is wonderful. The
packaging
on the cruelty-free soap is beautiful and environmentally friendly,
as well.
You receive complements from fellow employees on the shoes you
wear to work on their stylishness and look of comfort. You wonder what
their reaction would be if they knew the shoes were vegan containing
no leather.

As we attempt to buy products that satisfy both our consumer
and philosophical needs, we come across some products we think are
amazing and some we think should never have been produced. For those products
that provide us satisfaction must come a desire to reward the
companies responsible for these products. We need to support their efforts
and assist them in the daunting challenge of being ethically and materially
successful. This article will explore various ways you can support
these businesses.

One can eat only so many vegetarian burgers. So beyond direct
consumption you may ask how you can provide meaningful support
to these businesses. A simple approach but one that is appreciated
by the owner is to communicate your satisfaction by phone or mail. You
should also communicate your satisfaction to the retailer and distributor
of the product You will be surprised at the impact this has on retailers
and it may persuade them to continue carrying a product that has only modest
sales. You can promote the product to friends, family, co-workers, and
through any organizations where you are a member. Provide samples and
explain to them why you think it is a great product.

This experience may convince you that you would like to play
a larger role in promoting the product. Depending on your sophistication
in business affairs, the first step will be to determine who owns
the product that you like. This is often not as clear cut as it may seem.
The lowfat bean burrito that you enjoyed at Taco Bell is a product of Pepsi Inc.
and is probably being sold to you by one of their franchisees. The Healthy
Choice cereal you eat in the morning is produced by Kellogg who has licensed
the Healthy Choice trademark from Con Agra Corporation.

Often times finding the owner of a known product is relatively
easy. By examining the packaging of the product there is usually
information on the owner and there may be an "800" number
to call for comments and information. To find out basic information about
the company and its finances you can go to most local libraries and
almost all college libraries and request the librarian refer you to Value
Line and/or Standard and Poor Investment Guides.

For smaller firms, it may be a bit more difficult to locate
information. Since most of these firms are privately held (ownership
is retained by the founders) your best source is probably Dun and
Bradstreet or the Thomas Register. Ask you librarian who can probably suggest
other sources such as state business directories, etc. For small businesses
such as restaurants and neighborhood health food stores, there may be
little published information available and you will have to do your own
observation and enter into conversations with the owner and employees.
You will often be surprised how willing they will be to discuss
the business and its prospects.

Vegetarian Friendly Investing

Once you learn more about the business, then you will need to
determine whether it compliments your ethical standards. If there is a fit,
then you need to consider what type of relationship you wish to forge with
the firm.

One option would be to act as a sales representative for the
business. This arrangement would be mutually beneficial for both
parties as you try to convince area distributors and stores to carry the
product. By doing food tastings or giving out samples at stores and local
fairs, you would increase customer awareness about the product, which should
lead to direct customer sales and/or have them request that their local
stores carry the product.

If a direct relationship turns out not to be feasible, then you
may consider investing in the business. A sound principle of investing
is to go with businesses that you are familiar with, believe in, and understand.
A vegetarian friendly business may well satisfy these criteria but
they must also satisfy sound investment criteria, as well.

This type of investing can be considered a more focused approach
to socially responsible investing (acronym SRI). The Social Investment
Forum, a national professional association for Socially Responsible
investing, defines SRI as "the channeling of personal, community,
or workplace capital toward just, peaceful, healthy, environmentally
sound purposes and away from destructive uses." (1) SRI has existed
since the early 1900s and in recent years has experienced significant expansion
in the number of investment opportunities and providers.(2) It has been
estimated that in 1989 more than $450 billion of investing was done with
SRI criteria in mind.

The expansion of opportunities has made vegetarian friendly
investment both easier and somewhat more complex. It is easier
because, just like the Vegetarian movement, the number of businesses providing
vegetarian and vegetarian friendly products has grown significantly
and provides a panorama of investment choices. The complexity is due
to the often complicated process of identifying which business you want
to invest in and what is the best approach for making this investment. This
identification of desirable investments requires both an understanding
of your own ethical priorities and of the investment world.

In developing a vegetarian friendly investment strategy, you
must determine the types of businesses and products you want to support
and which ones you want to avoid. Often times you will find that a
firm may produce some wonderful products or have an enlightened approach
to the environment yet tests on animals and/or not practice fair employment.
There are resources like The Better World Investment Guide that
evaluate companies' policies toward typical social responsibility concerns
such as testing on animals, employment policies, environmental practice,
etc.

While guides are useful, they are only a starting point in
identifying a good vegetarian friendly investment. The same can
be said of mutual funds based on SRI criteria. To the best of my knowledge,
there does not exist any references specifically geared to vegetarian
friendly investments. If any reader knows of references on investment
managers offering vegetarian friendly investments, please contact Vegetarian Journal.

This does not mean that there are not vegetarian friendly
investments available but they will require some effort on your
part to identify them. Once identified, you then need to analyze their
investment merits. There needs to be balance between ethical and investment
criteria. Not all firms that are vegetarian friendly will make sound investments.
Many times firms on the cutting edge may be ahead of the competition
but if they are too far ahead of consumer tastes they may not generate
enough market interest to be financially viable. The next step in the
process is to understand some of the basics of investment.

Investment Basics

You now have some ideas on a few companies that may be worthy
of investment but you need to know more about how to invest. The
first step is to ascertain the ownership form of the business. If the firm
is publicly held, you can invest directly by buying stock or indirectly through
investment in a mutual fund. A publicly held company is one where
part or all of the ownership has been sold to public investors and is
traded on one of the stock exchanges. While there are thousands of publicly
owned businesses there are millions of businesses totally owned by the
entrepreneurs running them and are known as privately held. So
a firm must reach a certain size before it is feasible for it to go public
and it usually goes public so it can obtain capital to grow further.

When a firm does go public, it does through an "initial"
public offering that is managed by an investment banker. Advantages of
buying stock at the initial public offering include not paying a commission
and getting in early. However, it is sometimes difficult to participate
if the company is felt to be a winner because all stock will go to a
stock broker's best customers. Another caveat on initial public offerings is
the need to check on the integrity and prior successes and failures of the
investment banker underwriting the offering. Some investment bankers operate
on the fringes and their offerings should be avoided.

Once a firm's stock is in public hands, it is traded between
different investors and trades do not directly affect the firm
The firm does not directly gain when you purchase their stock from another investor.
Yet, executives are concerned because often times their compensation
is tied into the performance of the stock. A firm's management is also
interested for several reasons in who owns the stock of their business. One
reason is that when one buys stock in a firm they receive voting rights
on certain issues affecting the firm. You receive one vote for each share
owned. Be informed that large firms will have many millions of shares outstanding.
Shareholders vote on who will sit on the Board of Directors, on
who will be hired as the outside auditors of the firm's finances, and other
general policy issues. In normal times, this vote has little impact on a firm's
management. Typically management hand picks board candidates who agree with
their policies and those candidates will be elected. General policy
issues may be stockholder motivated and usually take an activist perspective
or be presented by management and deal with such policy issues as stock
option incentives for employees compensation, etc. In almost all cases,
the management side wins.

On the rare occasion when the management agenda encounters
defeat, it is usually when the major stockholders are dissatisfied
with the business's performance. If the firm has been performing poorly
and the Board of Directors have not responded sufficiently then there
may be a move to name a new Board that will pressure or remove management.
Another, often overlapping situation, is when an investor(s) gain
a sizable share of ownership and want their investment more fully represented.
These investors may push for board representation and may even
attempt a corporate takeover. In this situation, your vote will carry more
weight than normal.

Overall, your reason for owning stock is that you believe that
the business provides a needed product/service that minimizes or eliminates
the use of animal/environmental resources and do business in ways
that match your values. The business should also be run efficiently
(maximize use of their resources) and effectively (providing the market
place with what they want). This is quite a challenge and any business that
comes close to satisfying these criteria deserves investment support
as well as being a good investment opportunity for you.

A Few Examples

It may be useful to examine some publicly-held businesses that
may qualify as vegetarian friendly investments. These examples show the risk
and opportunity inherent in investing. They also show that you will
have to determine whether or not they fit your ethical and investment
criteria.

Tofutti Brands-TOF Symbol on American Stock Exchange

Tofutti Brands is one of the pioneers of the Vegetarian Friendly
Movement. While purists may argue over the healthfulness of some
of Tofutti's products, it nonetheless led the way as a developer
of soy based products. The company was founded by David Mintz who started in
his kitchen experimenting with dairy free frozen desserts. In time,
Mintz was able to develop a tasty product similar in taste and consistency
to ice cream but without butterfat, cholesterol, or lactose.

The company tried to parlay the Tofutti frozen dessert into a
full product line and opened several cafe outlets in New York City.
Revenues rose from 2.4 million in 1984 to 17.4 million in 1985 but then
steadily dropped to the $4 million level where it has settled. This is
due to retrenchment back to Tofutti Plus, a dairy free cream cheese and
an egg substitute product.

The stock price movement reflects the reversal of fortune. The
company went public in 1983 at an adjusted price of 1.92 and hit
a high of 18 in 1985. The stock dropped from that point and in the last
7 years has traded between 50 cents and $4. The movement in Tofutti's stock
shows how quickly the stock price can go up and down. Those participating
in the initial public offering and cashing in within the next few years
did extremely well. Those investing during the growth years fared
poorly. Tofutti's stock price movement is not that unusual and should
be considered relevant as you make investment decisions.

Wholesome & Hearty Foods-WHFI Symbol on NASDAQ

Wholesome & Hearty Foods has been a publicly held company
since June 1992 and financial data is available from 1990. It is best known
for its Gardenburger which has been served at TGI Friday's for several
years. In addition, the firm produces variations of the Gardenburger, sausage,
dairy-free beverages and cheeses. Products are sold in the U.S., Canada,
and certain European markets through 100 brokers and 500 distributors.
Its products differ from ADM and several others because it does not
use soy as an ingredient.

Revenues and income almost doubled each year from 1990 to
1993. Due to changes in outstanding shares, earnings per share
have not quite doubled. The company's stock has split twice, a 2-1 split
in 1993 and a 3-2 split in 1994. A stock split is done to make the shares
more affordable for investors. Splits do not change the worth of the
investment for each investor.

The movement of the stock price has been rather volatile. The
initial public offering consisted of 40,000 units with each unit
providing investors four common shares and two redeemable warrants each
convertible into a share of stock. The range of each share of
stock in 1992 ranged from 1 21/32 to 4 3/32. The stock experienced a steady
rise and in 1994 shot up to 30 3/4. It then almost immediately dropped to
the 15 level.

Archer Daniels Midland (ADM) NYSE

Archer Daniels Midland (ADM) has been making news even without
their ubiquitous sponsorship and commercials on all the Sunday news
commentaries. Media has reported that one of their executives
has turned out to be an FBI informant who alleges that the company is involved
in the illegal price fixing of certain food additives.

Given this scenario you may be wondering how this company
could qualify as a vegetarian friendly investment. As a matter
of fact, several years ago, ADM developed a vegeburger called the Harvest
Burger that was one of the first good-tasting, meat-like burgers on the
mass market. This burger seems to appeal to both vegetarians and non-
vegetarians and created quite a stir in the vegetarian community.

What ADM is good at is processing and merchandising
agricultural commodities such as oilseeds, wheat, and corn to
food manufacturers and farmers. It is a $12 billion company and has
generated increasing earnings for a long period of time. Its stock price
also followed this trend until their problems with the FBI. It was as low as
3 5/8 in 1985 and was over 19 in 1991.

Assessing Risk and Reward

As our review indicates, there can be a great deal of risk in
investing in
stocks. On the other hand, a well timed investment can bring large
rewards. As you consider investing in vegetarian friendly businesses,
you
have to gauge your tolerance for risk and your ability to lose
some of your
investment. As you begin, it makes sense to make investments in
an amount that you can afford to lose. Your initial trades will also
provide practice in developing investment strategies and learning more
about how the market behaves.

In general, larger more established firms will experience less
volatility in their stock price than smaller firms. However, smaller
firms offer the potential for greatest reward. Also, most vegetarian
businesses will be rather small and quite likely volatile. You may decide
it best to invest across several businesses which will lessen your exposure
to any one company's fortune.

Mutual Funds

The idea for Socially Responsible Investing began with mutual
funds and most SRI related investment is still focused on this investment
type. A mutual fund is formed by pooling money of many investors and purchasing
stock and bonds (debt issued by businesses and government agencies)
according to the objectives of that fund. The fund is managed
by investment professionals and is usually part of a family of funds
managed by that investment group. Most small investors use mutual funds
as their primary investment vehicle and the number of funds have increased
dramatically in the last few years.

Mutual funds provide several benefits over the purchase of
individual stocks.

Funds provide a cheap method for obtaining a more
diverse portfolio.

For those who do not have time, expertise or desire to
do the requisite research needed to identify good stock investments,
the managers of the fund perform this service.

There are funds specifically set up for various SRI objectives.

Unfortunately, from my research I could not identify a fund that
is specifically geared to vegetarian friendly investment. If any
reader knows of one, please let Vegetarian Journal know. Since there are no funds
focused on vegetarian friendly investment, it is quite possible
that no existing funds will satisfy your value priorities.

Yet, SRI based funds may be helpful in identifying individual
companies that do satisfy your priorities. SRI funds employ what
is known as screens in evaluating potential investments. A positive screen
is used to identify businesses engaged in activities that make a positive
contribution to society. Examples of activities often considered positive are
"the ethical treatment of animals," organic growing methods, and strong
environmental standards. A negative screen is designed to eliminate
businesses that produce unhealthy products and/or engage in undesirable
practices.

My advice is to write to several SRI funds and tell them you
are interesting in investing in vegetarian friendly businesses and
inform them what is required to be vegetarian friendly. Request investor information
which should detail their investment philosophy, the criteria
they use to construct positive and negative screens, and their current portfolio
of holdings. From this information, you can scan their portfolio
that is usually categorized by industry type and you will be able to identify
potential vegetarian friendly businesses worthy of further research.

Summary

It is important if you want to spread the influence of vegetarianism
that your investment strategy be included in your overall activities.
This article is admittedly an elementary treatment of available investment
options and their characteristics. It will hopefully increase awareness about
the relationship between vegetarian activism and individual investment
strategies. To do this will provide assistance to businesses trying
to market vegetarian friendly products. The success of these businesses
have a direct impact on the ultimate influence that vegetarianism can have.
If these businesses can attract mainstream customers with their products
then these people may begin to adopt the broader beliefs of vegetarianism.

The next time you buy a high quality vegetarian friendly
product, take the time to find out who produced it and see if
you can become a part of their business. This can profit you, the business
and the vegetarian movement.

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